Tesla Takes a Hit From NJ Direct-Sale Ban

"He [Elon Musk] needs to stop and take a breath. If you're an Internet billionaire, maybe you think the world revolves around you, and the world springs from your laptop. Well, I got news for him. This is not a new law, Tesla is operating illegally, and as of April 1, they will be out of business unless they decide to open a franchise." -Jim Appleton, the president of the New Jersey Coalition of Automobile Retails, or NJ CAR.

"This Musk guy, he wants all the profits for himself. They want to go direct, which means no sales force. That's cutting out a lot of people. No way that's gonna fly." -Tom Dougherty, a 25-year veteran of the car salesman business who now works in sales at a high end vehicle dealership in Princeton, N.J.

NEW YORK (TheStreet) -- When the fourth-most-populated U.S. state says it's my way or the highway, you're going to take a hit on market share.

Jim Appleton is correct in saying the state of New Jersey's law of banning direct sales of cars to consumers has remained active since it's inception and is not a new law. In fact, it's rather old.

However, New Jersey's motor vehicle commission had issued two licenses to Tesla (TSLA) allowing the company to operate its own stores in New Jersey.

But now, as of April 1, New Jersey is enforcing the law for every car company selling in the state to go through a dealership -- forcing Tesla to either cooperate or drop all New Jersey sales. It's already having an effect on Tesla's stock, now around $217 and up nearly 44% for the year to date.

Here is my map detailing which states allow Tesla sales and which states have restrictions in place.

Interesting... Colorado has restrictions in place on the sale of Tesla vehicles, an environment-friendly car that could change the world for good yet have no restrictions on the sale of recreational and medical marijuana. [I just found that interesting and wanted to bring it up. I remain vanilla and don't have an opinion either way on this fact.]

So New Jersey, why the change of heart? You were all set to go with this "next generation" way of selling cars...

Here's a quote from an intense blog post on Tesla's Web site written by Musk explaining the situation:

On Tuesday, under pressure from the New Jersey auto dealer lobby to protect its monopoly, the New Jersey Motor Vehicle Commission, composed of political appointees of the Governor, ended your right to purchase vehicles at a manufacturer store within the state. Governor [Chris] Christie had promised that this would be put to a vote of the elected state legislature, which is the appropriate way to change the law. When it became apparent to the auto dealer lobby that this approach would not succeed, they cut a backroom deal with the Governor to circumvent the legislative process and pass a regulation that is fundamentally contrary to the intent of the law.


In the blog post, Musk recommended people in New Jersey who want to purchase Tesla vehicles cross the Hudson River and go to the Tesla showroom in lower Manhattan. Unless New York puts in its own ban on direct sales.

Now, most important:

How will this affect Tesla's stock price?

TSLA is a trading favorite among many of my day/swing trader friends and mentors. The volume is strong, the swings are violent and full of fun and trader sentiment is always very clear, making it easy to trade the stock off trader psychology.

The abolition of Tesla's car sales in any single state will hurt the company and cut into Tesla's market share.

Even though New Jersey only represented a small share of Tesla's total sales, N.J. was still marked as fourth-largest market for luxury automobiles following New York, Florida, and California. Tesla's Model S car can be priced over $100,000 and definitely fits in the 'luxury automobile' category.

Now that New York is heavily considering a ban as well, that could have a serious effect on Tesla. New York is the third most populated state in America, with 8.3 million people. In front of New York is California at #1 and Texas at #2.

Tesla's stock price has risen 554% over the past year, going from the stock's close on March 21st, 2013 ($36.01) to last Friday, March 21st ($236.50.)

No short term damage was done to Tesla's stock price in response to the announcement of the news on March 11th, where the stock price closed at $236.50.

I think Tesla's stock may eventually see some short-term affects of a falling stock price, due to the company not being able to make sales how it wants to in various states. 

However, I think Tesla's new way of selling automobiles will eventually become the new normal.

The people of New Jersey have already decided to fight back. Via the political crowd funding platform FundElevator, people are starting to raise money for a lobbying effort against New Jersey and the enforcement of this law.

"Tesla is changing the world and keeping American greatness alive. We can't let special interests and political corruption get in the way of that."

The consumers have spoken. People love this very innovative way of doing business and I think as the younger generation moves up, we'll adapt to the changes Mr. Musk is pioneering in our current system. Musk comes from the internet world, a world where there are far fewer contracts, rules, regulations, and middle men. It's a simpler way. I believe it's where we are headed.

Go Elon Musk, go innovation, and go the next generation of car sales.

#BullishOnTesla

Many Happy Returns,

Rachel

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

More from Opinion

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise

Cable Stock Investors Should Keep an Eye On Wireless Broadband's Rise

Trump Blinks on China Trade War That's Looking Harder to Win

Trump Blinks on China Trade War That's Looking Harder to Win

Monday Madness: GE, China, and Micron

Monday Madness: GE, China, and Micron

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

How Technology Will Unleash the Legal Marijuana Industry's Growth Potential

How Technology Will Unleash the Legal Marijuana Industry's Growth Potential